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4000 - Advisory Opinions

Third-Party Loan Guarantee to Bank ESOP Plan for Bank Stock Purchase


December 26, 1984

Todd E. Morton, Regional Attorney

This will respond to your letter of November 16, 1984, and will confirm our telephone conversations of November 30, 1984, and December 26, 1984, in regard to a proposal by your client * * *, whereby the bank seeks to guarantee a loan from a third party bank to your client bank's Employee Stock Ownership Plan ("ESOP"), in order to permit the ESOP to purchase additional bank stock. You essentially ask whether this activity would be permissible in light of the constraints of Part 332 of the FDIC rules and regulations (12 C.F.R. Part 332) against bank guarantees of the obligations of others.

You are advised in the affirmative. The guarantee of a loan by a third party bank to the guarantor bank's ESOP has been recognized as an exception to the general prohibition contained in the cited regulation. Over the years the FDIC has generally recognized an exception where the guarantor bank has a "substantial interest" in the underlying transaction. Accordingly, it is our opinion that a guarantee accorded by the bank on behalf of the ESOP would not be violative of section 332.

Your correspondence also asks essentially whether specific assets of the bank may be pledged as part of the guarantee in the above-described transaction. However, you have indicated that based on certain reservations expressed by the Office of the Controller, state of Florida, such a pledge is no longer contemplated incidental to this transaction.

We trust the foregoing will reply to your inquiry.

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